A couple of posts back, I made some comments that ignited a challenge to me to come up with some kind of measurable evidence that our system really works.

The beauty of this investment methodology is that it’s not one that’s so doctrinaire that, given the same set of circumstances, everyone could be relied upon to do exactly the same thing. The variables are simply too many and too subjective. Therefore, you can’t put together a control group whose performance you can empirically measure against a benchmark.

Believe me, if I could make my point without seeming to brag, I would. What I buy, when, and for how much, and how my portfolio performs is my own business. So, I’ve tried to avoid talking about my own case and relied on the logic and common sense of this approach to impress people with its validity.

Another reason, quite candidly, is that I don’t practice what I preach as well as I might. I’m something of a poor example, carrying to an extreme my preference to do the very least I can to be successful. Investing is not my hobby, it’s a necessity. And I think, for the great majority of people, it’s much the same.

But teaching others how to do it is my joy and passion! And trying to get others to do at least enough to make money with their money is what I’d rather do with my time. So, some of the reason I’ve been reluctant to try to keep score has been because I had some doubts about my portfolios’ performance being good enough to hold up as an example.

It’s said that an honest confession is good for the soul.

That said….

I finally did come up with a way to come as close to measuring my actual return as possible, without going into the complexities of the Internal Rate of Return.

Using math that calculates the worse-case scenario in a portfolio that accepts no more inflows of cash and suffers only withdrawals, my portfolio did produce a compounded return of between 5.2% and 8.6% over the past five years, the lower figure being calculated as if all of the withdrawals occurred at the end of the period.

During this time, the DOW, S&P500, and the Russell2000 showed returns of 0.1%, -1.0%, and 0.3% respectively.

It’s been pointed out to me that it’s not a fair measure because, in calculating the return on the indices, I haven’t factored in the dividend yields over the period. And that’s true. But, even with those things considered, I’m well satisfied that doing as we suggest, even as mechanically as possible, can produce similar results.

And, inasmuch as the financial professionals have a difficult time matching the indices, I think it’s a safe bet to say you can do it yourself, and very easily.

If this is really an important issue, I’d welcome an audit by an unbiased, recoginized authority setting the record straight for me. I certainly don’t want to go through what the Beardstown Ladies did some years ago.

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